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I find the letter interesting as it contrasts so much with our Tech industry: mature vs. unproven, simple vs. complicated, sound past vs. promising future. It l

by athenot 12y ago

I find the letter interesting as it contrasts so much with our Tech industry: mature vs. unproven, simple vs. complicated, sound past vs. promising future. It looks like the complete opposite of VC-influenced business. Even so, I believe there are takeaways. If we're building startups which have yet to prove themselves, it's still good to have a long term view. I'm reminded of Jack Ma's vision to build a company that lasts 99 years. Ma and Buffet's risks are—I believe—not pure chance but well calculated. Something I'm trying to improve personally but have a ways to go…

MrBuddyCasino 12y ago
Yes, that was indeed remarkable. The inflated valuations, the self-interest of those that get paid in those transactions - I'd love to read something as insightful as Mr. Buffet has written, only for the tech sector.
- AndrewKemendo 12y ago
  I don't think they are really comparable to be honest. If you look at the type of businesses that BH is involved in, it's things that have "book value," in other words tangible assets that can be inventoried, depreciate and are generally considered durable goods. In "Tech" the vast majority of assets are human capital and it is too "fickle" and companies are very easily supplanted for the really long game that BH plays. Notice that the "tech" they do own is in things like IBM Coke for example is a big asset of BH that falls slightly outside of this because the bulk of what makes Coke - Coke, is it's brand. But even still, it has a massive industrial capacity.
  - hawkice 12y ago
    Couldn't disagree more. His story about building BH into a powerhouse centered on valuing things at more than just book value (notably, See's Candy, which was one of their first amazing investments, which he was worried about purchasing for 3x net tangible assets, but notes that it was only because he wasn't yet skilled at Munger's investment style yet). One of the durable advantages he looks for is having a strong brand (as he says in the letter) -- Coke is not that atypical an investment for them. His reason for being largely extremely-low-tech is that he loves to understand the businesses he invests in really, really well (probably his big competitive advantage), and by his own admission, he doesn't really understand tech.
    - AndrewKemendo 12y ago
      Right, the brand thing is what I was trying to drive at as being a large factor for purchase decision outside of just tangible assets. I have also read enough of Buffet to know that while he likes to put on the hat of gump old man, he has teams of people who he relies on for things he "doesn't understand" - and we aren't talking about nuclear technology here. Especially if you are making brand decisions, Google is a huge brand, and the technology is not esoteric nor is the business model. The difference though is that google is software based, while IBM is hardware. At least that's how it has historically been...I am curious what BH will do as IBM moves toward more software/people centered.
    - mike_hearn 12y ago
      That part of the letter seemed unsatisfying to me. Perhaps there's some obvious backstory here I'm unaware of (I never heard of See's Candy), but all the letter says is that it had a big and strong competitive advantage, without bothering to say what that was. Brand? I can't think of many other candidates beyond some amazing one-off deal with suppliers. It's a chocolate company. How powerful can the brand really be? Why would their brand be so much better than any others? And why was it so obvious to Buffet that this brand was great yet apparently not to anyone else? This story doesn't really tell us anything about his investment strategy at all.
      - HeyLaughingBoy 12y ago
        IIRC, in Snowball, he mentions that the competitive advantage of See's was that it was exceptionally good quality candy. I don't remember the details very well, but it's likely that he realized that with better management and marketing, they could produce far more value than the company cost at the time.

by athenot 12y ago

MrBuddyCasino 12y ago

Yes, that was indeed remarkable. The inflated valuations, the self-interest of those that get paid in those transactions - I'd love to read something as insightful as Mr. Buffet has written, only for the tech sector.

AndrewKemendo 12y ago
I don't think they are really comparable to be honest. If you look at the type of businesses that BH is involved in, it's things that have "book value," in other words tangible assets that can be inventoried, depreciate and are generally considered durable goods. In "Tech" the vast majority of assets are human capital and it is too "fickle" and companies are very easily supplanted for the really long game that BH plays. Notice that the "tech" they do own is in things like IBM Coke for example is a big asset of BH that falls slightly outside of this because the bulk of what makes Coke - Coke, is it's brand. But even still, it has a massive industrial capacity.
- hawkice 12y ago
  Couldn't disagree more. His story about building BH into a powerhouse centered on valuing things at more than just book value (notably, See's Candy, which was one of their first amazing investments, which he was worried about purchasing for 3x net tangible assets, but notes that it was only because he wasn't yet skilled at Munger's investment style yet). One of the durable advantages he looks for is having a strong brand (as he says in the letter) -- Coke is not that atypical an investment for them. His reason for being largely extremely-low-tech is that he loves to understand the businesses he invests in really, really well (probably his big competitive advantage), and by his own admission, he doesn't really understand tech.
  - AndrewKemendo 12y ago
    Right, the brand thing is what I was trying to drive at as being a large factor for purchase decision outside of just tangible assets. I have also read enough of Buffet to know that while he likes to put on the hat of gump old man, he has teams of people who he relies on for things he "doesn't understand" - and we aren't talking about nuclear technology here. Especially if you are making brand decisions, Google is a huge brand, and the technology is not esoteric nor is the business model. The difference though is that google is software based, while IBM is hardware. At least that's how it has historically been...I am curious what BH will do as IBM moves toward more software/people centered.
  - mike_hearn 12y ago
    That part of the letter seemed unsatisfying to me. Perhaps there's some obvious backstory here I'm unaware of (I never heard of See's Candy), but all the letter says is that it had a big and strong competitive advantage, without bothering to say what that was. Brand? I can't think of many other candidates beyond some amazing one-off deal with suppliers. It's a chocolate company. How powerful can the brand really be? Why would their brand be so much better than any others? And why was it so obvious to Buffet that this brand was great yet apparently not to anyone else? This story doesn't really tell us anything about his investment strategy at all.
    - HeyLaughingBoy 12y ago
      IIRC, in Snowball, he mentions that the competitive advantage of See's was that it was exceptionally good quality candy. I don't remember the details very well, but it's likely that he realized that with better management and marketing, they could produce far more value than the company cost at the time.